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Supplemental Security Income beneficiaries were supposed to get stimulus checks with no strings attached.
Three U.S. senators say the extra income has compromised benefits for some and are asking the Social Security Administration for an explanation.

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When Covid-19 stimulus checks were deployed to millions of Americans, the government reassured Social Security and Supplemental Security Income beneficiaries they were eligible for payments.
But some beneficiaries, who include retired and disabled Americans, may have gotten more than they bargained for — lost benefits.

Some SSI recipients have seen their benefits suspended or have been assessed overpayments as a result of stimulus checks, which were worth up to $3,200 per individual or $6,400 per married couple over three rounds of payments. Social Security beneficiaries have also reportedly received overpayment notices.
Those reports prompted three Democratic leaders — Sens. Ron Wyden, D-Ore.; Sherrod Brown, D-Ohio; and Bob Casey, D-Pa. — to send a letter to the Social Security Administration last week stating they are “deeply concerned.”

Stimulus funds clashed with strict SSI asset limits

Supplemental Security Income, or SSI, provides benefits to adults and children who are disabled and blind, as well as elderly individuals age 65 or older with little income or resources.
The size of the monthly payment beneficiaries receive depends on their income, living circumstances, assets and other factors. Each month, beneficiaries must report their income and wages, as well as any changes to their resources or living arrangements.
That oversight is aimed at making sure beneficiaries still qualify under SSI’s strict rules. Notably, that includes a limit of $2,000 in assets of any kind per individual beneficiary, or $3,000 for married couples or two-parent families with children who are SSI beneficiaries.

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SSI beneficiaries tend to have few resources and limited income, and therefore likely qualified for full stimulus payments. But the low asset limits means those payments may have caused complications.
The Social Security Administration announced in 2021 that the stimulus checks would not count toward eligibility and payments of SSI benefits, regardless of how long beneficiaries held onto the money.

Benefit suspensions have ‘profound negative impact’

“SSI benefits, while modest, have a substantial impact in the lives of the people who rely on them,” the senators wrote to Kilolo Kijakazi, acting commissioner of the Social Security Administration. “Benefit suspensions and overpayment notices — regardless of the cause — can have a profound negative impact in their lives.”
“Further, losing SSI eligibility risks a lengthy bureaucratic process to restore eligibility and also risks beneficiaries’ access to Medicaid coverage,” the senators wrote.
The lawmakers are asking the Social Security Administration to provide more information on the number of beneficiaries who saw their benefits reduced or suspended between March 2020 and July 2021; August 2021 and December 2022; and January 2023 to September 2023.

Additionally, the leaders are seeking to find out how many of those individuals saw their benefits reinstated without an appeals hearing; how many were reinstated due to an appeals hearing; the number of appeals that have been denied; and the number of appeals that are still pending.
The senators are also seeking to find out the number of claimants who have been denied SSI benefits because of the stimulus checks, among other details.
Notably, Brown and other lawmakers are working on a bipartisan bill to update SSI’s asset limits.
The errors come as no surprise to Darcy Milburn, director of Social Security and health-care policy at The Arc, an advocacy organization for people with intellectual and developmental disabilities. The group was hearing about this issue “fairly frequently” during the depths of the pandemic.

“It’s honestly trailed off a bit now,” Milburn said. “But some people are still having issues.”
One reason for that is it can be a challenge for the Social Security Administration to communicate guidance all the way down to the local level, she said.
There are 7.6 million people on SSI, and each one of those people’s assets are checked very frequently by the Social Security Administration, according to Milburn.
“If at any point in time, one of those SSI beneficiaries had assets over the $2,000 limit, it would have been flagged internally,” Milburn said.

When SSI beneficiaries should file an appeal

The general advice for situations with overpaid Social Security benefits is to communicate income and asset changes to the Social Security Administration as quickly as possible, according to Milburn.
Notably, the disability community worked very hard to communicate that the stimulus payments should not count against income or assets for SSI beneficiaries, she said.
“If you receive an overpayment notice from the Social Security Administration, and believe that it was due to a Covid stimulus payment or another error that was made by the Social Security Administration, you should file an appeal,” Milburn said.

Stimulus checks ‘are not counted as income’

Social Security Administration spokeswoman Nicole Tiggemann confirmed to CNBC on Monday that the agency had received the senators’ letter and plans to respond directly to them.
The agency has also instructed its employees to ask about the receipt of stimulus checks, formally referred to as economic impact payments, including how much was received, how much had been saved and where, Tiggemann said. Social Security Administration employees were instructed to deduct the saved amounts from a beneficiary’s financial account balance until they reported having spent the funds completely.
Additionally, the Social Security Administration provided information on the stimulus checks on web pages, blogs, social media, emails to SSI beneficiaries with my Social Security accounts, letters to advocates, and mailed notices to people who received or were eligible for SSI in 2020 and 2021, Tiggemann said.
“We included information that [economic impact payments] are not counted as income when received and will not be counted against SSI applicants or recipients’ resource limits no matter how long they keep those funds,” Tiggemann said. More

After becoming popular on TikTok, more people are trying the so-called envelope method, or “cash stuffing,” to stay on budget and out of debt.
But there are downsides to stashing cash at home rather than in a high-yield savings account, including leaving yourself vulnerable to theft and forfeiting as much as 5% in interest.

Daniel Grill | Getty Images

These days, savers can get better returns on their cash than they have in nearly two decades.
After a series of interest rate hikes from the Federal Reserve, top-yielding online savings account rates are now more than 5%, according to Bankrate.com.

“Moving your money to a high-yield savings account is the easiest money you are ever going to make,” said Greg McBride, Bankrate.com’s chief financial analyst.
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And yet, some people are forgoing competitive returns altogether in favor of keeping cash, literally, at home.

How cash stuffing works

After gaining popularity on TikTok, more young adults are trying the so-called envelope method, or “cash stuffing,” to stay on budget and out of debt.
The premise is simple: Spending money is divided up into envelopes representing your monthly expenses, such as groceries and gas. When the cash in one envelope is spent, you’re either done spending in that category for that month, or you need to borrow from another envelope.

“There is this back-to-basics mentality,” said Ted Rossman, senior industry analyst at Bankrate.
Such tools can help impose discipline, he said, which is “a reasonable way to stay on budget.”
However, it’s not “the ideal scenario,” he added.

Some downsides of keeping cash

Stashing cash not only forgoes the protections that come with consumer banking, it may also leave you vulnerable to theft.
Whether you are covered in case of a burglary may depend on your home insurance policy, whereas banks are covered by the FDIC, which insures your money for up to $250,000 per depositor, per account ownership category.
And then there is the additional cost that McBride flagged: a missed opportunity to earn up to 5% on your savings.

“Generally, introducing the idea of budgeting is probably a positive thing but if folks are leaning on cash as opposed to taking advantage of the highest returns we’ve seen in a long time in high-yield savings accounts, then they are leaving money on the table,” said Matt Schulz, chief credit analyst at LendingTree.
For example, if you have $5,000 in a high-yield savings account earning 5%, you’ll make $250 in interest in a year.
“When you are living paycheck to paycheck, every little bit helps,” Schulz said.
Alternatives like Treasury bills, certificates of deposit or money market accounts have also emerged as competitive options for cash, although this may mean tying up your savings for a few months or more.

Vet financial advice from social media

Dvorkin recommends seeking out credible sources such as the National Foundation for Credit Counseling or the Consumer Financial Protection Bureau.
“Stay away from TikTok, stay away from Instagram,” he said.
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The average annual percentage rate for retail credit cards reached 28.93%, a record, up from 26.72% last year, according to Bankrate.
“We’ve seen all types of credit card rates go up in recent years, but store cards have been increasingly notable,” said Ted Rossman, senior industry analyst at Bankrate.
Here are three things to consider when looking into retail credit cards.

Hispanolistic | E+ | Getty Images

As the average interest rate on retail store credit cards nears 30%, many holiday shoppers could be in for even more financial strain this year if they carry a balance.
The average annual percentage rate for merchant cards reached 28.93%, a new record high, up from 26.72% last year, according to new data from Bankrate.

“We’ve seen all types of credit card rates go up in recent years, but store cards have been increasingly notable,” said Ted Rossman, senior industry analyst at Bankrate.
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In the past, 29.99% interest rates were listed on credit cards of all kinds as so-called penalty rates, or the rate an issuer would charge a consumer who was late with payments, said Matt Schulz, chief credit analyst at LendingTree.
“It’s becoming way more common for many credit cards to have that as a possible standard rate,” Schulz told CNBC in a previous interview.
While retail store credit cards can be easier to qualify for, especially for those with lower credit scores or little credit history, experts say consumers should be careful when deciding to open such a high-rate line of credit.

When to avoid retail credit cards

Retail credit cards can help shoppers save money on purchases and gain early access to sales, which can be valuable benefits as long as you pay the card in full. However, you may want to avoid them if you’re going to carry a balance, experts warn. 
“With such high interest rates, these purchases could cost you more than double what they originally were when you first bought the item, if you carry that debt for a long time,” said Sara Rathner, credit cards expert and writer at NerdWallet.  
Holiday debt does have a way of sticking around. About 52% of Americans incurred credit card debt while holiday shopping last year, and as of mid-August, nearly a third have yet to pay off their balances, according to NerdWallet’s 2023 Holiday Shopping Report.

Yet, about 74% of 2023 holiday shoppers still plan on using credit cards to buy gifts this year, NerdWallet found. 
For holiday shoppers who may consider opening a retail credit card for holiday purchases, it can be smart to do so if a sizable discount is offered or if the purchase is something you or the gift recipient will benefit from in the long term, said Bankrate’s Rossman. 
Otherwise, shoppers may want to question what effects the transaction will have on their financial future, added Rathner.

‘These 0% promos are very dangerous’

Retail credit cards will oftentimes offer a 0% interest promotion described as “deferred interest.” However, if the cardholder misses a payment by mistake or does not pay the balance in full, “these 0% promos could be dangerous,” said Rossman. 
Consumers might see deferred interest offers more commonly in stores where they are more likely to make major purchases, such as appliances or furniture, said Rathner.

With such high interest rates, these purchases could cost you more than double what they originally were.

Sara Rathner
credit cards expert and writer at NerdWallet.  

With a deferred interest deal, cardholders are given a set amount of time to make payments with 0% interest. If they have not paid off the purchase in full by the end of the period, not only will they earn interest on the remaining balance, but they will also retroactively incur interest on the original purchase price, she added.
“If you bought a couch for $2,000 and you still owed $500 by the time the promotion ended, you don’t just owe interest on the $500, you owe interest on the $2,000,” Rathner said.
It’s a “very sneaky” and common tactic on retail cards that’s often buried in the fine print, added Rossman.

Don’t make financial choices at the register

Take your time when deciding whether to open a new line of credit, but don’t make your mind up at the cash register.
“People make bad decisions because they don’t think it through or they don’t realize what’s going on,” said Rossman.

Ask for a brochure you can take home, and then research the credit card and its terms online. See what other offers are available and perhaps weigh competing products against one another to find the best option that suits your needs, Rathner added.
“Don’t make that decision in a crowded store during the holiday season, when everybody behind you is yelling at you to finish,” said Rathner.Don’t miss these CNBC PRO stories: More

Most analysts predict the market for new weight loss drugs such as Wegovy and Mounjaro will be enormous, but estimates vary.
On Monday, Citi raised its estimate for incretin drug sales to $71 billion by 2035, up from its prior estimate of $55 billion.

George Frey | Reuters

Most analysts predict the market for new weight loss drugs such as Wegovy and Mounjaro will be enormous, but estimates vary for its exact size depending on who you ask.
On Monday, Citi raised its estimate for incretin drug sales to $71 billion by 2035, up from its prior estimate of $55 billion. That viewpoint seems really conservative when placed side by side with predictions such as Guggenheim’s. Last month, the firm made a case for there being a $150 billion to $200 billion opportunity for these drugs.

Guggenheim analyst Seamus Fernandez’s conviction comes from his belief that GLP-1-based incretins will become the most prescribed drugs ever by or before 2031. Not only do these drugs work well for managing insulin levels and helping patients lose weight, but studies are also underway to show their benefits for cardiovascular health, sleep apnea and chronic kidney disease, to name a few.
Fernandez expects $50 billion in GLP-1 sales will come from patients with diabetes as incretin medication becomes the standard of care for this condition. Patients with obesity will add another $140 billion in sales, he said.
Citi’s forecast does reflect more modest assumptions. It is assuming the number of patients opting for the weekly injections will be below 10% of the non-Medicare obese patient population.
“Despite the obvious demand and unmet medical need, we continue to struggle with our inability to predict with any accuracy the long-term upside for incretins given the >42% prevalence of obesity,” analyst Andrew Baum wrote in a research note Monday.
The drugs are very pricey, with a list price of as much as $1,350 per month for Wegovy. At the moment, private insurance coverage isn’t a guarantee for those seeking weight loss treatment, and the federal Medicare program doesn’t cover weight loss drugs at all.

Still, the insurance situation is improving, as are supply bottlenecks.
Quite a number of analysts expect these issues will be worked out over time and expect peak sales for these medications to reach around $100 billion by 2030. Goldman Sachs joined this camp last Monday with its latest forecast.
“In 2030, we estimate that ~15mn adults in the US will be treated with AOM [anti-obesity medication] for chronic weight management (excluding patients treated for type 2 diabetes), which represents ~13% penetration into the U.S. adult population,” analyst Chris Shibutani wrote in a research note.
Shibutani said about $52 billion will be captured by Eli Lilly, which sells Mounjaro, or tirzepatide. Eli Lilly expects the U.S. Food and Drug Administration to approve this drug to treat obesity by the end of this year. Its pipeline also includes experimental, next-generation incretins orforglipron and retatrutide.

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Eli Lilly shares have risen nearly 60% since the start of the year.

Novo Nordisk, which is already approved to sell Wegovy (semaglutide) as a weight loss treatment, also has additional anti-obesity drugs in its pipeline such as CagriSema.
Many industry analysts anticipate that Novo Nordisk and Eli Lilly will reign over this market segment in a duopoly for quite a while. There are some other drugmakers looking to enter this segment, but they remain significantly behind. Goldman’s model forecasts the two companies will have an 80% share of the market in 2030.
Both stocks are up significantly on the back of optimism for the anti-obesity drug market. Eli Lilly shares have gained nearly 60%, while Novo Nordisk has climbed more than 40%.
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Year-end Planning

The IRS has announced a special withdrawal process for small businesses that wrongly claimed a pandemic-era tax break.
If you’ve neither received an employee retention credit refund nor cashed your ERC refund check,  there’s still time to withdraw your filing, according to the agency.
Here’s what small businesses need to know about the withdrawal option.

The Good Brigade | Digitalvision | Getty Images

More from Year-End Planning

Here’s a look at more coverage on what to do finance-wise as the end of the year approaches:

“This is a game-changer,” said Eric Hylton, national director of compliance for Alliantgroup, a firm that has been reviewing ERC claims for other tax professionals.
“I’m actually shocked at some of the horror stories we’ve been seeing,” said Hylton, who is a former IRS commissioner for the agency’s small business and self-employed division.

It’s a ‘mulligan moment’

If you’ve neither received an ERC refund nor cashed your ERC refund check, there’s still time to withdraw your filing, according to the agency. You may qualify if you meet three conditions: you made the claim on an adjusted employment tax return, only changed your filing for the ERC and want to withdraw the entire claim.
You can find the complete details on eligibility and how to withdraw your claim at IRS.gov/withdrawmyERC.

“It’s a mulligan moment,” said Dean Zerbe, national managing director at Alliantgroup. He said the withdrawal option is an opportunity to fix mistakes before the IRS catches them. 

Currently, there’s an IRS backlog of unprocessed ERC filings. As of Oct. 11, the agency estimated a backlog of 849,000 Forms 941-X, which includes ERC claims.   
Small businesses should take the opportunity to “sharpen their pencil” and review their pending ERC filings with a tax professional, Zerbe said, pointing to the strict eligibility requirements. “Business owners can’t just whistle by the graveyard.”
“Think long and hard about what you’re doing here because the IRS is going to be all over this,” he added.

How to handle processed ERC claims

If the IRS already processed your ERC claim and you cashed the refund check, Hylton still recommends reviewing the filing with a tax professional to see if an amendment is necessary.
For example, it’s possible you only qualified to receive the ERC for two quarters but claimed the credit for four or six quarters, he said. Whether you need to make a minor change or major correction, it’s critical to “address the issue as soon as possible,” Hylton said. “You want to be ahead of them.”Don’t miss these CNBC PRO stories: More

The yield on the benchmark 10-year U.S. Treasury note rose above 5% once again on Monday, having passed the milestone on Thursday for the first time since 2007.
Yields move inversely to prices.
The U.S. federal government ended its fiscal year in September with a budget deficit of almost $1.7 trillion, the Treasury Department announced Friday.

Andrew Kelly | Reuters

The bond vigilantes are coming back as investors continue to sell amid the prospect of higher-for-longer interest rates and a growing fiscal deficit, according to Kevin Zhao, head of global sovereign and currency at UBS Asset Management.
The yield on the benchmark 10-year U.S. Treasury note rose above 5% once again on Monday, having passed the milestone on Thursday for the first time since 2007. Yields move inversely to prices.

The further selling came after Federal Reserve Chairman Jerome Powell vowed to remain resolute in keeping monetary policy tight as the central bank looks to return inflation sustainably to its 2% target, while investors are also pricing in surprising economic resilience alongside fiscal slippage.
The U.S. federal government ended its fiscal year in September with a budget deficit of almost $1.7 trillion, the Treasury Department announced Friday, adding to a huge national debt totaling $33.6 trillion. The country’s debt has swelled by more than $10 trillion since the onset of the Covid-19 pandemic in the first quarter of 2020, prompting a deluge of fiscal stimulus to help prop up the economy.

Speaking on CNBC’s “Squawk Box Europe” on Friday, Zhao highlighted the historic bond market sell-off that greeted former British Prime Minister Liz Truss’ disastrous “mini-budget” last September — which included a raft of unfunded tax cuts — as an example of bond investors lashing out against what they deem to be irresponsible fiscal policy.
“The bond vigilante is coming back, so this is very important for asset prices in equity, house prices, fiscal policy, monetary policy, so no longer is this a free ride on bond markets anymore — so the government has to be very careful in terms of the future. You saw that last September, you saw that in Treasurys,” Zhao said.
“A few months ago, most people expected the U.S. government deficit would keep going down with growth slowing — it was 3.9% last year and it’s actually going up with growth slowing — that is quite alarming for bond investors.”

The term “bond vigilantes” refers to bond market investors who protest against monetary or fiscal policy they fear is inflationary by selling bonds, thereby increasing yields.
Meanwhile markets are assessing the potential for interest rates to stay higher for longer as the Fed continues to try to rein in sticky inflation. U.S. inflation has retreated significantly from its June 2022 peak of 9.1% year on year, but still came in above expectations in September at 3.7%.
Before holding off on hiking in September, the U.S. Federal Reserve had lifted its main policy rate from a target range of 0.25%-0.5% in March 2022 to 5.25%-5.5% in July 2023.
Fed fund futures pricing reflects a 98% probability that the central bank keeps its main interest rate unchanged at the current target range of 5.25%-5.5% at its next monetary policy meeting.

Zhao’s comments echo the sentiment voiced by several strategists stateside in recent weeks. Yardeni Research President Ed Yardeni told CNBC earlier this month that bond vigilantes had been “asleep for a long time” because inflation was persistently low from the 2008 financial crisis through to the Covid-19 pandemic, but had now awoken again as inflation soared in the aftermath of the pandemic.
“During the pandemic environment we saw basically an experiment in Modern Monetary Theory, helicopter money, money kind of raining down on people’s deposits and that was accommodated by easy monetary policy — well monetary policy has reversed course and has tightened, meanwhile, fiscal policy has gone the other way and has been way too stimulative, and the bond vigilantes are being vigilant again about fiscal policy,” Yardeni said.
“They’re basically saying ‘cut this deficit substantially or we’re going to raise rates to levels that are going to clobber the economy, and then what are you going to do?'”
The 10-year yield is widely seen as a proxy for mortgage rates and a gauge of investor sentiment about the strength of the economy, since a rising yield implies a fall in demand for traditional “safe haven” Treasury bonds, signaling investors are comfortable opting for higher-risk investments.
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The yield on the benchmark 10-year Treasury note, a key barometer for mortgage rates, auto loans and student debt, rose back above 5% Monday. 
Consumer borrowing costs could head higher as a result. 
Savers may benefit from higher rates.

The yield on the benchmark 10-year Treasury topped 5% again Monday, a key level that could impact mortgage rates, student debt, auto loans and more.
Last week, the 10-year yield crossed the 5% threshold for the first time in 16 years after Federal Reserve Chair Jerome Powell said “inflation is still too high,” raising expectations that another rate hike may not be completely off the table this year.

“That has real impacts on the economy, ultimately affecting every individual in the U.S.,” said Mark Hamrick, Bankrate.com’s senior economic analyst.
Stock futures fell on Monday as yields rose and investors assessed the prospect of higher-for-longer interest rates from the Fed.

The yield on the 10-year note is a barometer for mortgage rates and other types of loans.
“When the 10-year yield goes up, it will have a knock-on effect for almost everything,” according to Columbia Business School economics professor Brett House.
Even though many of these consumer loans are fixed, anyone taking out a new loan will likely pay more in interest, he said.

Why Treasury yields have jumped

A bond’s yield is the total annual return investors get from bond payments. There are many factors driving the recent spike in Treasury yields, economists said.
For one, yields tend to rise and fall according to the Federal Reserve’s interest rate policy and investors’ inflation expectations.
In this case, the central bank has hiked its benchmark rate aggressively since early 2022 to tame historically high inflation, pushing up bond yields. Inflation has fallen significantly since then. However, Fed officials and recent strong U.S. economic data suggest interest rates will likely have to stay higher for a longer time than many expected to finish the job. Higher oil prices have also fed into inflation fears.

But interest rates are just part of the story.
Most of the recent jump in Treasury yields is due to a so-called “term premium,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics.
Basically, investors are demanding a higher return to lend their money to the U.S. government — in this case, for 10 years. One reason: Investors seem skittish about rising U.S. government debt, Hunter said. Generally, investors demand a higher return if they perceive a greater risk of the government’s inability to pay back debt in the future.
The rapid rise in Treasury yields may “accelerate an already weakening economic picture that is masked by higher rates,” said Canaccord Genuity Group chief market strategist Tony Dwyer in a Monday note.

Mortgage rates will stay high

Most Americans’ largest liability is their home mortgage. Currently, the average 30-year fixed rate is up to 8%, according to Freddie Mac.
“For those who are planning to buy a home, this is really bad news,” said Eugenio Aleman, chief economist at Raymond James.
“Mortgage rates will probably continue to go up and that will push affordability farther away.”

Student loans could get pricier

There is also a correlation between Treasury yields and student loans.
A college education is the second-largest expense an individual is likely to face in a lifetime, right after purchasing a home. To cover that cost, more than half of families borrow.

Undergraduate students who take out new direct federal student loans for the 2023-24 academic year are now paying 5.50% — up from 4.99% in the 2022-23 academic year and 3.73% in 2021-22.
The government sets the annual rates on those loans once a year, based on the 10-year Treasury.
If the 10-year yield stays above 5%, federal student loan interest rates could increase again when they reset in the spring, costing student borrowers even more in interest.

Car loans are getting more expensive

There is also a loose correlation between Treasury yields and auto loans. The average rate on a five-year new car loan is currently 7.62%, the highest in 16 years, according to Bankrate. Now, more consumers face monthly payments that they likely cannot afford.
“There are only so many people who can carve out an $800 to $1,000 car payment,” Bankrate’s Hamrick said.
More from Personal Finance:The inflation breakdown for September 2023 — in one chartSocial Security cost-of-living adjustment will be 3.2% in 2024Lawmakers take aim at credit card debt, interest rates, fees
While other types of borrowing, including credit cards, small business loans and home equity lines of credit, are predominantly pegged to the federal funds rate and rise or fall in step with Fed rate moves, those rates could head higher, too, according Aleman.
“Everything from business loans to consumer loans is going to be affected,” he said.

Savers can benefit

One group that does stand to benefit from higher yields is savers.
“For many years, we’ve been bemoaning the plight of savers,” Hamrick said. But because yields tend to be correlated to changes in the target federal funds rate, deposit rates are finally higher. 
High-yield savings accounts, certificates of deposits and money market accounts are now paying over 5%, according to Bankrate, which is the most savers have been able to earn in more than 15 years.
“This is the rare time in recent history when cash looks pretty good,” Hamrick said.
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The Biden administration restarted student loan bills for 40 million Americans this month.
So far, the transition is proving painful for many borrowers.

Education Secretary Miguel Cardona, at rear, listens as Vice President Kamala Harris speaks in Washington, D.C., June 2, 2022.
Olivier Douliery | Afp | Getty Images

Amberlee McGaughey, a librarian in Pennsylvania, was not worried about the restart of student loan payments. She was done with her debt, or so she thought.
In August, she applied for the Public Service Loan Forgiveness program with her loan servicer, MOHELA, or the Missouri Higher Education Loan Authority. The PSLF program allows those who have worked for certain nonprofits or the government to get their debt erased after 120 payments, or 10 years. McGaughey’s records, reviewed by CNBC, show that she’s made 125 qualifying payments.

Still, MOHELA sent her a bill for $675, due on Oct. 7.
“I panicked,” McGaughey, 36, said. “I wasn’t expecting to go into repayment, and I definitely couldn’t afford that.”
When she contacted MOHELA, she couldn’t get anyone on the phone.
“All of my wait times were over 100 minutes,” she said. “I tried sending email messages, and they went unanswered.”
More from Personal Finance:More colleges are offering guaranteed admissionStrategy could shave thousands off college costsShould you apply early to college?

The Biden administration restarted student loan payments for some 40 million Americans this month, putting an end to the pandemic-era pause on the bills that had been in effect since March 2020.
So far, the transition back to payments is proving painful for many borrowers, who complain of long wait times trying to reach their servicers, errors with their bills, lost account information and denied relief for which they believed they were eligible.
These issues can have devastating impacts on household finances, consumer advocates say.
“Being forced to make incorrect monthly payments places additional strain on borrowers’ monthly finances and puts some in the position of being unable to keep up with their other bills,” said Ella Azoulay, a policy analyst at the Student Borrower Protection Center.
Outstanding education debt in the U.S. exceeds $1.7 trillion, burdening Americans more than credit card or auto debt. The average loan balance at graduation has tripled since the ’90s, to $30,000 from $10,000. Around 7% of student loan borrowers are now more than $100,000 in debt.

Changes add uncertainty for servicers, borrowers

Carolina Rodriguez, director of the Education Debt Consumer Assistance Program, a nonprofit in New York, said she’s never seen this kind of chaos in the student loan space before.
“Servicers are having a very hard time getting people back into repayment,” Rodriguez said.
In the calmest of times, the federal student loan system is famously complicated. There are some 12 plans for repaying your student loans, a web of forgiveness options, and a soup of wonky terms such as “forbearance” and “deferment.”

Recently, there have been a number of changes to the lending system, adding even more uncertainty for servicers and borrowers.
“The government has made all these announcements, and it’s really confusing to people,” said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a trade group for federal student loan servicers.
In August 2022, President Joe Biden announced that he’d forgive up to $20,000 in student debt for tens of millions of Americans. But that plan quickly faced a barrage of legal challenges, and the Supreme Court ultimately rejected it in June, ruling that the president didn’t have the authority to wipe out $400 billion in consumer debt without prior authorization from Congress.

After that setback, and with the 2024 presidential campaign looming, Biden quickly moved ahead to provide borrowers with a new set of relief options before payments restarted in October.
Those measures included a 12-month “on-ramp” period during which borrowers are shielded from the consequences of missed payments and a new income-based repayment plan, which the U.S. Department of Education touted as the “most affordable repayment plan ever.”

Flawed data affects SAVE applicants

Yet borrowers have had trouble benefiting from this new repayment option, called the Saving on a Valuable Education, or SAVE, plan.
Rodriguez said many borrowers are getting billed for different amounts than they expected. She said she worked with a borrower who anticipated a monthly payment of around $400 and then got a bill for $2,000.
Some of the problems with the SAVE plan, which may have affected hundreds of thousands of borrowers, are due to flawed data provided by the Education Department and loan servicers’ use of outdated figures.

But at what point do you start to question why the Biden administration is still contracting with MOHELA and servicers who have financial incentives to do the wrong thing?

Braxton Brewington
press secretary at the Debt Collective, which advocates for debt cancellation

Another issue is that some of the plan’s features — including the most beneficial one to borrowers, a drop in payments by almost half — won’t be available until next summer, due to the timeline of regulatory changes. Many borrowers didn’t realize this, experts say.
“The Department is working closely with student loan servicers to ensure that they are doing everything to provide borrowers the information they need when they need it and holding servicers accountable when they do not,” said a spokesperson for the federal agency.
For SAVE payment plan issues, the department directed servicers to notify affected borrowers and put them into an administrative forbearance until they were able to calculate the correct payment amount. It may also refund some borrowers, the spokesperson said.

‘It’s a very messy system’

Sarah Cluff
Courtesy: Sarah Cluff

Still, some borrowers are struggling to even access the new option.
In early October, Sarah Cluff tried to contact her student loan servicer, Nelnet, to apply for the SAVE plan. Under the program, borrowers’ payments are calculated based on their household size and income, and Cluff had a number of questions. She recently got married and is now pregnant.
Her original student loan bill of $483, which was listed as due on Oct. 20, wasn’t affordable for her.
“That is more expensive than our car payment,” said Cluff, 28.
She was on hold for two and a half hours with Nelnet and then was disconnected before she could speak with a representative, she said. She called back and was on hold for an hour and a half.
“The communication is very lacking,” she said. “It’s a very messy system.”

Servicers face challenges going into ‘repayment surge’

Some of the issues at servicers are due to changes in the space over the last few years.
Around 16 million borrowers were transferred to a new servicer during the pandemic, after several companies dropped out of the business. Servicing federal student loans became less profitable when borrowers weren’t making payments.
In a September letter to the student loan servicers, Sen. Elizabeth Warren, D-Mass., and other lawmakers wrote that they were “deeply worried about your preparedness for this unprecedented return to repayment.”
In response, the servicers admitted that they were concerned, too.
MOHELA wrote that when payments restart it is “anticipating extended wait times and servicing delays.”

In January, Nelnet made deep cuts to its staff. Joe Popevis, executive director of NelNet, wrote that these reductions “would significantly impact our ability to rapidly ramp back up for return to repayment.”
“Though we are attempting to rehire many of the customer service agents whose employment we previously terminated, we will not be able to hire the staff needed for the repayment surge,” Popevis wrote to the lawmakers.
Servicers have indeed been given a daunting task in restarting the payments of tens of millions of Americans, said Braxton Brewington, press secretary for the Debt Collective, an organization that advocates for debt cancellation.
Still, the long wait times and incorrect information are inexcusable, Brewington said. These companies have had months to prepare, he said. He also said that long before the pandemic, the servicers had a record of mishandling borrowers’ accounts.

All my wait times were over 100 minutes.

Amberlee McGaughey
student loan borrower

“I wish I could chalk it all up to incompetence,” Brewington said. “But at what point do you start to question why the Biden administration is still contracting with MOHELA and servicers who have financial incentives to do the wrong thing?”
Jane Fox, the Legal Aid Society chapter chair at the Association of Legal Aid Attorneys in New York, said the main issue with the federal student loan system is that servicers are paid a fee per borrower, which leaves them little incentive to resolve issues or deliver on promised debt relief.
“They are not interested in getting you forgiven sooner,” Fox said. “They want to keep you in repayment.”
Buchanan, at the Student Loan Servicing Alliance, the servicers’ trade group, blamed many of the current issues at servicers on the “funding limitations of the government.”
“We look forward to being able to add additional resources whenever the government chooses to invest more in customer service for their borrowers,” Buchanan said.

Rocky restart could leave lasting financial scars

Partly in anticipation of these issues, the Biden administration promised federal student loan borrowers that they’ll be spared most of the penalties of missed or late payments until Sept. 30, 2024, through its 12-month “on-ramp” to repayment.
Yet it is uncertain if borrowers are even able to rely on this relief.
Brewington said some customer service staff at the servicers don’t seem properly trained to present borrowers with their options.

“If they can reach the servicer to begin with, they don’t know about the on-ramp or Public Service Loan Forgiveness,” Brewington said.
Meanwhile, as McGaughey, the librarian, tries to get the student loan forgiveness to which she’s entitled, her account is showing up as past due. During her calls to MOHELA, they warn her that they’re trying to collect a debt.
This is especially worrying to her because she’s currently trying to assume the mortgage on her house after a divorce.
“My credit is good, and I don’t want a negative mark,” she said. More